Better Benefits Pay Off for Employer and Employee

Businesses are competing for talent in a tight labor market, while workers continue to reevaluate what they expect from their employer. For both parties, attention naturally turns to employee benefits.

Competitive salaries will only go so far. People are attracted to much more than money. They want a loyal employer who invests in their associates’ present-day wellbeing and future growth and success. Savvy employers—even small ones—are realizing this comprehensive approach is a great way to recruit and retain associates for the long-term.

The good news is that robust benefits aren’t just attractive and supportive of your employees. They can also carry compelling tax advantages for both parties.

Many types of employee benefits are treated as tax-free compensation and are exempt from Social Security and Medicare (FICA) taxes. Additionally, employees can enjoy tax credits and deductions in the form of health insurance premiums; healthcare expenses; and contributions to tax-advantaged health, dependent care and transportation accounts, as well as retirement accounts.

No matter the size, all companies can and should consider every available offering that confers a tax credit or deduction, especially those exempt from The Federal Insurance Contribution Act (FICA) tax:

• Group health insurance: Employer contributions to premiums are tax-deductible. If that’s not enough motivation, if you have more than 50 FTEs, penalties for not providing health insurance or for providing group insurance that does not meet “minimum value and affordability” standards set by the IRS are not tax-deductible.
• Qualified retirement plans: The cost of setting up the plan as well as employer contributions to the plan are exempt from FICA, and the administrative costs for the plan can be paid by the employee from plan assets. Additionally, small companies may be able to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan (e.g., a 401(k) plan).
• Health savings accounts (HSAs): Employer and employee contributions to employees' accounts are exempt up to the dollar limit per year. For 2021, that’s $3,600 for individual coverage and $7,200 for family coverage under a high-deductible health plan (HDHP). For those age 55 & up they can contribute an additional $1,000 in the form of a catch-up contribution.
• Flexible Spending Accounts (FSA) and Limited Purpose FSAs: Employer contributions (up to $500, regardless of whether or not the employee contributes to a health FSA themselves) and dollar-for-dollar matches to the employee's contribution are exempt from FICA. Employee contributions (up to the $2,750 limit total including the employer contribution) reduce their taxable income.^*
• Dependent care: Employees can set aside up to $5,000 annually, and on a pre-tax basis, to pay for child care expenses ($10,500 for 2021, as part of the American Rescue Plan Act).
• Education assistance: Non-job related education assistance is exempt up to $5,250 each year. If the courses are job-related, then there's no dollar limit on the amount that is exempt.
• Group term life insurance: The cost of coverage up to $50,000 is exempt. Coverage for a spouse or dependent is exempt up to $2,000.
• Transportation benefits: The costs for parking, transit passes and van pooling are tax-free up to a set monthly limit ($270 in 2021).

To maximize time, effort and return on investment, look for a partner who can advise you on the right combination of corporate benefits for your business and then connect you with experts in each of four disciplines: insurance, tax-advantaged accounts, retirement planning and overall financial wellness.

A relationship with experts “all under one roof” not only yields a cost-effective program but also cohesiveness that individual partnerships can’t offer. A consistent corporate benefits team can provide your employees year-round education and support and the opportunity for a wrap-around financial wellness effort that leads to prosperity for the business and its associates for years to come.

 

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